Remind me -- during a housing turndown, when firms like Toll Brothers (NYSE:TOL), D.R. Horton (NYSE:DHI), and Centex (NYSE:CTX) are all pulling their hair out with frustration, unable to move homes, shouldn't companies providing the labor needed to build homes be having a tough time? That doesn't seem to be the case at blue-collar temp agency Labor Ready (NYSE:LRW), which has beat consensus estimates 15 times in a row now, and is gearing up to do so once again with tomorrow afternoon's fiscal Q3 2007 report.

What analysts say:

  • Buy, sell, or waffle? Wall Street expects the housing crisis to catch up with Labor Ready any day now, however. Of the eight analysts who follow the company, seven think it's at best a "hold," and one even counsels selling the stock.
  • Revenues. On average, sales rose 5.5% for the quarter, to $394.5 million.
  • Earnings. Profits are predicted to rise 4.2% to $0.50 per share.

What management says:
Meanwhile, Labor Ready continues to dodge the bullet, or the falling houses -- pick your metaphor of choice. Far from fearing an imminent blowup, CEO Steve Cooper confided last quarter that the firm is "experiencing positive momentum in our same branch sales growth," and is "pleased with the growth trends in same branch revenue since growing average branch revenue and profitability is our main priority."

What management does:
Growing revenues has been easier said than done, however, with total sales averaging less than 1% higher than last year, year to date. Growing profitability has been similarly difficult -- but in an economic environment like this one, I must say I'm sufficiently impressed that Labor Ready has held its gross, operating, and net margins as steady as it has.

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

31.7%

31.9%

32.1%

32.1%

32.3%

32.2%

Operating

7.5%

7.5%

7.6%

7.7%

7.6%

7.5%

Net

5.0%

5.0%

5.2%

5.7%

5.6%

5.6%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
At last report, Labor Ready was guiding investors to expect 4% sales growth this year, and profits perhaps 3% higher than last year. Which I suspect explains the analysts' pessimism. If these numbers prove out, Labor Ready's business will be slowing significantly in the months ahead. Year to date, the firm has managed to grow nearly 10% on essentially flat sales. If trends reverse as anticipated, the stock could resume its recent downward path.

But is that reason to sell it? After first recommending the stock in November 2006, and then booking a near-50% gain as it leapt skyward on strong results, the bargain-hunting team at Motley Fool Inside Value elected to sell Labor Ready this summer. If you still own it, it might behoove you to read Philip Durell's sell recommendation, and decide whether you agree with his logic. To do that, claim a free trial to the service by clicking right here.

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